TPP negotiations present far more questions than answers

Peter Clark is one of Canada’s leading international trade strategists. His clients, in Canada and around the world, include governments, corporations and trade associations. He is a frequent media commentator and columnist for iPolitics.ca.

Finally, Canada is at the Trans Pacific Partnership Agreement negotiating table. We fought long and hard to get there but what will the TPP mean for Canada? Will it be a much needed bridge to enhance trade and investment in Asia, or will we be sending Washington a gift which keeps on giving?

Will we know soon? Not likely under the current rules.

The negotiating texts state:

Declassify on: Four years from entry into force of the TPP agreement or, if no agreement enters into force, four years from the close of the negotiations.

What does this mean? Surely if a deal is done, this does not mean the details will be secret for 4 years after it is concluded? This, of course, is theatre of the absurd. It makes no sense — like much about these negotiations. What do the words mean?

Congress may force the Administration’s hand soon after the elections. Exposing the texts to daylight and broad scrutiny could have potential disastrous implications for the ability of negotiators to negotiate. But the U.S. has been its own worst enemy by misplaying normal negotiating confidentiality rules so that it has become as controversial as the substance.

Will there be consultations in Canada with stakeholders as there are in the U.S.? There is a structure for this but will it extend to sharing texts? Probably not.

Will stakeholders be able to discuss the real details with Parliamentary Committees? I doubt this will happen. Trade negotiation is not a spectator sport.

Canada and Mexico must accept and cannot re-open the negotiating texts which have been completed. However, what is done is largely, if not exclusively, organizational and tangential to the core issues. The three concluded chapters deal with:

Small and Medium Size Enterprises;

Co-operation; and

Administration.

U.S. negotiators have been on a global crusade to other TPP participants’ capitals trying to close additional chapters before Canada and Mexico came on board. It did not work.

Not much water has passed under this bridge after 14 rounds of negotiations. Did Canada miss much in the forced delay in its participation? Not much substance and flavour does not count.

The TPP is built on the P-4 Agreement (Trans-Pacific Strategic Economic Partnership Agreement) among Brunei, Chile, New Zealand and Singapore. The P‑4 is flexible and less ambitious than the TPP. Washington asked to join P-4, was welcomed and proceeded to hijack the process.

Have you ever had a controlling and over bearing house guest? Washington has not only re-decorated the P-4 house, it is renovating and building additions in its own model without regard for the initial design. Voila – the evolution from P‑4 to TPP.

Some participants are asking what is in this U.S. centric deal for them. Canada too needs to know, and soon.

Gordon Ritchie, who was so pivotal in negotiating Canada-U.S. Free Trade, suggests the TPP will not be worth much to Canada. I agree.

Canada has little to gain from the TPP unless the agreement includes Japan. Indeed, it was the prospect of Japan’s participation which revitalized the Harper Government’s interest in what was an underwhelming initiative.

Will Japan join the negotiations any time soon? Prime Minister Noda opened the TPP window a crack late in 2011, but if the window has not slammed shut – it is closing. ASEAN Plus, and a possible Trilateral FTA with Korea and China, seems to be very attractive and more flexible options for Japan.

The TPP negotiations are based on a shaky foundation. Congress has not formally authorized U.S. participation. Negotiating trade agreements with the U.S. if the Administration has not secured Trade Promotion Authority (TPA) from Congress is fraught with risk and with uncertainty. It is folly. That the Obama Administration has not yet asked Congress for their blessing and guidance makes the TPP negotiations a crap shoot.

The TPA approval process is a negotiation in itself between Congress and the Administration. Congress will lay out demands and conditions for granting TPA which will bind the U.S. negotiators. While the conditions imposed by Congress can be tough, at least everyone knows the rules. Now there is about as much certainty as a trip to the casino.

Without TPA all Trans Pacific partners are exposed to the virtual certainty, of having to re-negotiate a hard fought, done deal with Congress.

Fast Track TPA has been part of the U.S. negotiating process since the 1974 Trade Act. Negotiating partners need to be assured that the final agreement will not be subject to further negotiations with Congress. Ignore the risks of negotiating without TPA at your peril.

TPP will change NAFTA. Where there are differences in the terms of two agreements, the later in time agreement prevails.

Arguably after 25 years, CUSTA/NAFTA might benefit from some tweaking and massaging. But on balance, Canada would likely pay more in this game than the U.S. Reopening NAFTA on a broad scale would be unthinkable to all three governments. It is a deep, dark Pandora’s Box. Opening it would have serious emotional, political implications. Updating through TPP could provide the necessary cover.

The U.S appears to be treating the TPP as a series of bilateral negotiations under a single umbrella in a hub and spoke approach. The U.S. is, in effect, re-selling access to its markets by trying to impose on the other participants its own agenda for the so-called 21st Century issues.

Labour – it is no surprise the consensus ignores U.S. failure to ratify several important ILO core labour standards. The U.S. position caters to U.S. organized labour.

Environment – which demands participation in certain MEAs to which the U.S. is a member as well enforcement under the FTA.

Intellectual Property – U.S. objectives are captured in a very extensive listing relating to medicines and pharmaceutical patents.

Investment – could be seen as NAFTA plus.

Government Procurement – links procurement to labour standards and labour conditions and promotion of environmental protection in government procurement (Nancy Pelosi has already pushed legislation to ban the use of oil sands products by the U.S. military.)

The TPP could result in extra-territorial application of U.S. laws, particularly in the Intellectual Property area including criminalization of non-commercial infringement. Ask Kiwis about the Megaupload fiasco that found the N.Z. Government illegally spying on its own citizens.

Will the U.S. extend its own “fair use” protections in IP law to the TPP? Are all of the U.S. demands consistent with U.S. law – or what Congress has been prepared to consider reasonable legislation for American voters?

Will Canada benefit from the exclusion of sub-national government activities from the scope of the TPP which have been proposed by the USA? Government Procurement is an important example.

On government procurement, Canada seems likely to have a very far-reaching agreement with Europe. It will include sub-national governments and municipalities. Why should Canada accept a narrower deal with the USA?

The U.S. is not re-negotiating market access with Chile, Peru or Australia, nor with Mexico. Canada has been targeted for its dairy and poultry markets. Gordon Ritchie has addressed the politics of this issue in a recent Ottawa Citizen op-ed.

What happens to these existing FTAs amoung the members? What will become of the tariff schedules? Will there be a single set of Rules of Origin or will these differ from country to country? Will some order be brought to the spaghetti bowl of agreements amoung TPP partners?

What does the TPP mean for Canada’s existing FTAs with Chile and Peru? Is there anything to be gained on market access? Is there a compelling need to go beyond the new non-trade issues with these trading partners? The proposals on these are 21st Century issues benefit the USA far more than they do Canada. Should Canada pay for advancing the U.S. agenda?

Will Canada impede progress in the negotiations? Not likely; the negotiations are more or less in neutral.

Proposals on intellectual property which go beyond the WTO TRIPs rules are opposed by Chile and New Zealand, and perhaps others. Australia has linked disciplines on State Owned Enterprises to U.S. support for agricultural exports.

Hopefully, Canada has been consulting informally with other parties for several months. Much more consultation will be required if Canada is to hit the ground running for the 15th Round in Auckland.

Like the other players, Canada will need and will seek allies to make common cause. There should be many such opportunities. An important issue for Canadian farmers and ranchers is securing stronger disciplines on the use of sanitary and phyto-sanitary measures by Australia and N.Z. Chile and the USA will be very like-minded.

Canada must negotiate solid, ambitious trade agreements, to help replace declining trade with the USA. The U.S. market will always be important to Canada and will be our most important trading partner. But a return to growth seems quite far off. Canada needs diversified options and opportunities.

The Trans Pacific Partnership is more important for what it can become than for benefits which can be expected from the current membership. Canada has FTAs with four participants; the others, except for Vietnam, are rather small and some are quite distant geographically.

We should not assume that the TPP will be concluded on the basis of the current texts. The negotiations are likely less than half done. Remember how the Doha Round has been 80% done for years? Unless and until the U.S. agrees to additional balance, TPP like Doha will likely drift while participants explore other options.

If and when TPP is concluded, it may attract additional members. Some of the larger members of ASEAN, as well as Japan and Korea, would make early investment in the TPP farsighted and worthwhile. Without critical mass Canada would be another spoke to the U.S. hub in the TPP wheel. Is this worth all the effort?

Notwithstanding the uncertainties, the Harper Government was right to pursue participation in the TPP. Failure to do this would have precluded Canada helping to shape the deal and would have left us much further behind in future scope to expand trade in the growth markets of Asia.

Canada must change the perception that it cannot negotiate FTAs with Asian partners. Perceptions can become reality as appears to be the case with ASEAN.

Jesse James once said he robbed banks because that was where the money was. The same reasoning applies to negotiating Free Trade with Asia.

Unless over-reaching, unbalanced and inflexible U.S. demands frighten other participants away from the deal, TPP could be a template for future trade in the Pacific Rim and perhaps beyond. However, it remains to be seen whether or not the TPP is the best vehicle for improving Canadian trade and investment opportunities with Asia. Fortunately there are other options.

Canada has prudently initiated FTA negotiations with Japan. Negotiations with Korea should be completed soon. FTA negotiations with China seem ripe for launch if Cabinet makes the “right” decision on the NEXEN acquisition.

Participation in the TPP raises more questions for Canada than it answers. With Japan as a participant there could be real gains. Without it, TPP as currently envisaged would more likely be a gift to Washington with benefits to Canada being marginal and illusory. Fortunately for Canada, Trade Minister Ed Fast has made it clear that Canada will not accept bad or unbalanced trade deals. Break a leg, Minister.

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